I Sold a Bitcoin: Why I’m Quitting the Virtual Currency Game

This morning, I logged on to BitStamp, the Bitcoin exchange where I bought 93.523120 percent of a virtual currency unit last week for $124.81, and cashed out my entire stash. Bitcoin had its worst day in a week, crashing from yesterday’s high of $260 to $60 and halting trading on Mt. Gox, the biggest Bitcoin exchange. I escaped before the worst of the crash and got $121.02 back — meaning that, after I figure out how to get my exchange cash back into my wallet and pay a transaction fee, I’ll likely have spent about $5 on a week’s worth of currencyspeculation.

Not everyone is convinced that Bitcoin’s bubble phase is done. The Winklevii, for example, are doubling down in the wake of today’s crash. But I had to get out, if only because checking on Bitcoin’s price was filling an increasingly large portion of myday.

Getting inside the Bitcoin bubble, even at a tiny amount for a relatively small period of time, has taught me a fewthings:

1. I am the world’s worst investor. The very definition of “dumb money.” I’d have been the Dutchman gobbling up tulips in March of 1637, telling all of my friends they were due for a rebound. If I ever imply to any of you, in this space or any other, that you should invest in something, what you should actually do is short as much of that thing as your budget willallow.

Mostly, this is because investing is hard. It’s filled with psychological pitfalls — loss aversion, confirmation bias, the temptation to hold on to a winner for far longer than is prudent. At the outset, I told myself that I would sell my Bitcoin if it rose 20 percent. Then 20 became 50, which became 100, which became 200. I got greedy. I suspect that emotionless traders, who can cut losses and take gains with no voice in their heads telling them, “Just wait another day or two, it’ll get better,” exist. But I am definitely not one ofthem.

2. A lot of people are going to lose a lot of money on Bitcoin. It’s all fine and good to laugh at me and the Winklevii — they’re rich, and I had a tiny stake. But there are many latecomers to the Bitcoin frenzy who saw prices going up, assumed they’d keep going up for a while, and bought in with money they couldn’t necessarily afford to lose. Now what’s left of that money is tied up in halted exchanges, payment processing services that are running out of margin funding, and at risk of being stolen by hackers. Bitcoin’s creaky infrastructure began as an annoyance, but it’s costing people real money now, and pretty soon the consequences will be felt. It’s not for nothing that users on the Bitcoin subreddit are talking about suicideprevention.

3. Bitcoin needs adult supervision. It’s a paradox, as I pointed out yesterday, that the minute Bitcoin prices began crashing as a result of faulty exchange technology, enthusiasts began crying out for circuit breakers, forced loss compensation, and other forms of regulatory control. Bitcoin is an anarchist’s brainchild, and proponents believe that its value as a currency system is that it is, as Tyler Winklevoss put it, “free of politics and human error.” Of course, that’s not true. The exchange of money is deeply a political process that relies heavily on human intervention and competence — which is why Mt. Gox had to step in today and halt trading in order to stabilize its operations. Bitcoin needs more enforced stability mechanisms, and a governing entity to oversee them, if it’s ever going to be reliable enough to be considered a real alternative to government currency. That would sort of negate the entire point of Bitcoin, but it’strue.

4. Bitcoin is probably never going to recover fully from this crash, and that’s a good thing. The biggest thing I took away from my weeklong experiment in Bitcoin speculation was immense gratitude for our current monetary system, which is sensibly and carefully governed, and whose functionality is a sort of minor miracle we all take forgranted.

We don’t think about the Federal Reserve and the U.S. Treasury much, and when we do, it’s usually in the context of a mistake we think they’ve made or a policy decision we don’t like. But day in and day out, they create and oversee a monetary system — and a wonderful currency in the U.S. dollar — that has experienced historic stability that allows us to borrow money at record-low rates, that can help alleviate unemployment and misery through deliberate central planning, and that generally gives people the confidence that the dollar bills in their pockets will always be worth something. That’s notnothing.

Bitcoin is a wonderful, brilliant experiment. It has made untold numbers of people think about fiat currency and where their money derives its value. And its spike in popularity may, in the end, spark a chain of innovation that will result in a new and improved digital currencysystem.

But it’s an infantile system that is still going through some fairly acute growing pains. And while it’s a shame for Bitcoin enthusiasts that it’s going through those pains now — in full view of the masses and the media — it’s probably a good thing. Better that we lose faith in Bitcoin now, while it’s still a niche Internet phenomenon, than wait until it’s truly capable of doingdamage.